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CHAPTER 1 - CHAPTER EXAMINATION Score:

1. Which of the following statements is correct?

a. A cost driver is an accounting technique used to control costs.
b. A cost driver is a measure of activity, such as direct labor hours, machine hours, beds occupied, computer
time, etc., that is a causal factor in the incurrence of costs.
c. A cost driver is an accounting measurement used to evaluate whether or not performance is proceeding
according to plan.
d. A cost driver is a mechanical basis used to assign costs to activities.
2. Product costs or inventoriable costs
a. are charged to expense when products become part of the finished goods inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing the products.
3. Which of the following costs is not a product cost?
a. Wages paid to workers for rework on defective products.
b. Wages paid to truck loaders who load finished goods onto outgoing delivery trucks.
c. Fringe benefits paid to factory workers.
d. Wages paid to workers for idle time due to machine breakdown in a production department.
4. Product costs
a. are always expensed in the same period in which they are incurred
b. are inventoriable costs.
c. vary directly with changes in the cost driver.
d. are always charged to an asset account in the same period in which they are incurred.

ITEMS 5 and 6 ARE BASED ON THE FOLLOWING INFORMATION:

Following are costs incurred by XYZ Manufacturing Corporation during the previous month:

Direct materials P 5,000

Indirect materials 2,000
Direct labor 6,000
Indirect labor 1,000
Factory utilities 4,000
Advertising costs 8,000
Sales commissions 12,000
Depreciation on administration building 3,000
Salaries of administrative personnel 20,000
Depreciation - delivery equipment 2,000
Overtime pay - factory workers 1,500
Rework cost on defective products discovered during quality inspection 2,500

5. Total product costs:

a. P67,000 c. P22,000
b. P45,000 d. P18,000
6. Total period costs:
a. P67,000 c. P49,000
b. P45,000 d. P22,000
7. Manufacturing costs do not include
a. prime costs
b. conversion costs.
c. indirect materials.
d. salary of the company president, under whom is the vice president for production.

8. Direct labor cost is a

a. prime cost. c. product cost.
b. conversion cost. d. All of the above
9. For product costing purposes, an indirect factory cost
a. is not directly chargeable to the company.
b. is chargeable to prime costs.
c. is chargeable to conversion costs.
d. is never included in the computation of product cost.
10. A fixed cost that would be considered a direct cost is
a. salary of the sales manager when the cost object is the sales department.
b. salary of the controller when the cost object is a unit of product.
c. fees of the Board of Directors when the cost object is the Production Department.
d. the rental cost of the finished goods warehouse when the cost object is the Accounting Department.
Name: Date:
CHAPTER 1 - CHAPTER EXAMINATION Score:

11. Indirect materials and indirect labor are

Prime Cost Conversion Cost Manufacturing Cost
a. Yes Yes Yes
b. No No Yes
c. No Yes Yes
d. Yes No No
12. Which of the following is a direct product cost?
a. Wood in a furniture factory.
b. Salary of the foreman in the assembly division of an automobile company
c. Depreciation of factory equipment.
d. Salesman's commission.
13. The salaries of the factory janitorial and maintenance staff should be classified as
a. direct labor cost. c. prime cost.
b. period cost. d. factory overhead cost.
14. An income or benefit that is given up when one alternative is selected over another is called
a. loss. c. relevant cost.
b. opportunity cost. d. differential cost.
15. Within the relevant range, unit variable costs
a. are constant per unit, regardless of units produced or sold.
b. vary directly with the activity level.
c. vary inversely with the activity level.
d. are at the minimum.
16. When production (in units) decreases, the average cost per unit of product increases. This increase in the average
cost per unit is due to the
a. increase in variable cost per unit.
b. increase in fixed cost per unit.
c. increase in total variable costs.
d. increase in total fixed costs.
17. Consider Line AB in each of the following graphs:
Graph 1 Graph 2 Graph 3

Line AB is the
Graph 1 Graph 2 Graph 3
a. total sales line fixed cost per unit line total variable cost line
b. variable cost per unit line total variable cost line total fixed cost line
c. total variable cost line total fixed cost line total cost line
d. break-even line parallel line total sales line

18. When activity changes, this cost shifts upward or downward by a certain interval.
a. Step cost c. Shifting cost
b. Cost interval d. Incremental cost
19. In cost accounting, the term relevant range refers to the range over which
a. relevant costs are incurred.
b. production should be confined.
c. total fixed costs fluctuate.
d. cost relationships are valid.
20. Which of the following statements about cost behavior is correct?
a. Within the relevant range, total variable costs may vary directly with activity, while total fixed costs remain
unchanged for a given period despite fluctuations in activity.
b. Within the relevant range, variable cost per unit varies directly with activity, while fixed cost per unit remains
unchanged for a given period despite fluctuations in activity.
c. Within the relevant range, fixed cost per unit varies directly with activity, while variable cost per unit remains
unchanged for a given period despite fluctuations in activity.
d. Within the relevant range, total variable costs may vary inversely with activity, while total fixed costs remain
unchanged for a given period despite fluctuations in activity